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Friday, 2 November 2018

Why is innovation a challenge for established publishers?

Charles Thiede, CEO of tech startup Zapnito (and former CPO of Nature Publishing Group and CTO of Informa Business Intelligence), explores the theory of the innovator’s dilemma. And what publishers can learn from it.

In a couple of weeks’ time, I’m going to be chairing an event with ALPSP entitled ‘Innovate or Perish? How to think like a startup’. It’s got me thinking on the challenges of innovation within large publishers - challenges I’ve seen from the inside, as well as out.

I asked Zapnito advisor Mark Allin, former CEO of Wiley and a speaker at the event, for his view on how innovative publishing companies are at the moment. On a scale of 1-10, he gave them 3 or 4. That’s not ideal.

So why is this the case? There’s no question that the publishing industry is full of talent and resources. Yet startups are often seen as having the edge when it comes to innovation. The ‘innovator’s dilemma’ - a term coined by Clayton Christensen in 1997, offers insight into why that is.

The innovator’s dilemma

The problem isn’t necessarily lack of innovation itself, or enthusiasm to try new ideas, but more the environment in which those new ideas are developed and nurtured.

The value from new innovations isn’t realised immediately. It tends to follow an S-curve (see the yellow line on the graph). Improving a product takes time and many iterations, and quite often the early iterations provide minimal value. That can prove the sticking point for many businesses.

Ultimately, the primary aim of most established companies is to keep and add additional value to their existing customer base and their current business models. This means new and innovative ideas can be undervalued, because they are applied and tested with existing customers or through existing models, rather than looking at new markets or models.

It also means that if innovative ideas fail to deliver results quickly, they are seen as failing - the ROI is thought to be too low. In this case, often management acts ‘sensibly’, in what they view to be the company’s best fiduciary interests, and rejects continued investment in the innovation.

This is why startups, usually with little or nothing to lose when they enter the market, are so much more successful. They find new markets to apply their innovations, largely by trial and error, at low margins. Their nimbleness and low cost structures allow them to operate sustainably where established companies could not. They don’t have the same responsibilities to, for example, shareholders or existing customers.

At the same time, especially with ‘bootstrapped’ companies, startups must survive on their own two feet. This means that if the initial idea doesn’t work, they can adapt and even pivot their models. We did this at Zapnito early on. In contrast, for an established publisher, the initial idea is often fixed and changing direction means failure.

By finding the right application use and market, startups advance rapidly and hit the steep part of the S-curve, eventually entering the more mature markets of the established companies and disrupting them.

What’s the solution?

There is no one way to do innovation. But to me, the most vital change is a change in attitudes. Traditional publishers will need to think outside their traditional business models. Innovation does not need to be in context of existing ways of doing business. Too many media companies are organised around delivery models vs. solutions to a market. That leaves little room for innovation.

There’s also a need to start playing the long game and looking for ways to manage development processes so that it’s okay to change direction, or even to fail.

I also want to challenge the idea of innovation itself. Innovation does not mean invention. Most people think innovation and invention are synonymous. But Jeff Bezos did not invent ecommerce. Steve Jobs did not invent smartphones. The innovation happened in the execution of those ideas and how they were delivered to the market.

There are lots of potential ways for publishers to nurture more innovation within their companies. This could be through mergers and acquisitions (M&A), partnering with disruptive businesses, creating an internal ‘skunkworks’-style structure, or even separating out new innovations into offshoot companies.

These are all ideas I’m looking forward to exploring at the event. Hope to see you there.